Greece races against time to form government

Greece tries again on Tuesday to form a government, hoping a technocrat solution to disputes over a tough EU-IMF bailout deal will avoid new polls and keep it in the eurozone as time runs down fast.

Leaders from all bar the far-right parties that won seats in inconclusive May 6 polls will meet at 1100 GMT Tuesday to try and get the country “out of a dead end,” Socialist Pasok party headEvangelos Venizelos said Monday.

Parliament convenes Thursday and if no government is in place, new polls will have to be called, prolonging an agonising crisis by another month to the dismay of Greece’s EU partners and the markets.

President Carolos Papoulias met Venizelos and heads of the conservative New Democracy and radical Democratic Left, proposing Monday in the absence of any other solution a government of “distinguished and non-political figures.”

“I think time is against us,” Papoulias told the meeting, adding: “I am terrified at the idea of the problems facing the country” in the coming days.

A first test comes Tuesday with a government bond sale, which will be closely watched after European financial markets tumbled Monday at the prospect that the eurozone debt crisis could now snag troubled Spain or even Italy.

Another challenge was passed Tuesday when Greece repaid 436 million euros in maturing debt, covering private creditors who had refused to take part in an unprecedented write-down under the EU-IMF bailout, a government source said.

A small number of private creditors rejected the deal and had threatened litigation to get their money back, and the source said the move was intended to avoid any further dispute.

In the May 6 polls, Greek voters roundly rejected the tough austerity measures the outgoing technocrat government of Lucas Papademos agreed to in return for the 240 billion euro ($310 billion) EU-IMF bailout accord.

Picking up on a groundswell of opposition across Europe to governments that put austerity before growth, both left and right gained at the expense of New Democracy and Pasok, which had supported Papademos to get the debt deal done.

In recent months senior EU officials have more openly raised the prospect of Greece leaving the euro, but on Monday the head of eurozone finance ministers group hit back strongly, insisting that Athens was staying put.

“I don’t envisage, not even for one second, Greece leaving,” Jean-Claude Juncker said after the 17 eurozone partners unanimously affirmed their “unshakable desire” to keep Greece in the club.

“This is nonsense, this is propaganda,” he said, adding that the Eurogroup “will do everything possible” to prevent a Greek exit and that “absolutely no one argued in that direction.”

There can be little doubt about the seriousness of the situation both for Greece, if it has to leave the eurozone, and for its partners who might lose billions in its disorderly withdrawal from the bloc.

France would face a bill of 50 billion euros if Greece were forced to quit, outgoing French Finance Minister Francois Baroin warned Tuesday.

“If Greece leaves the euro, if its economic model collapses and there’s no more banking system, that would cost us 50 billion euros net, plus the assets that the banks and insurers have on their books,” he said.

Charles Dallara, who as head of the Institute of International Finance helped negotiate the private creditor write-down, warned that the cost of failure would be too high to bear.

“I believe that the cost to Greece, the cost to Europe and the cost to the entire global economy may still be enough to cause Greek politicians and European politicians to pause before they pull the trigger on a Greek exit.”